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With Evergrande on the Brink, the China Hustle Comes Home to Roost

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21.09.2021

David Z. Morris

David Z. Morris is CoinDesk's Chief Insights Columnist. He holds Bitcoin, Ethereum, Solana, and small amounts of other crypto assets.

Follow @davidzmorris on Twitter

The Dow Jones Industrial Average has dropped as much as 2.4% today – which, as a reminder to crypto traders, is in fact a whole lot in equities markets. One major narrative explaining the drop is centered on Evergrande, a hugely indebted Chinese real estate developer that appears to be on the brink of collapse.

Because its debt is held widely in China (and elsewhere), Evergrande could trigger much broader financial fallout if it defaults as the depth of its obvious insolvency becomes clearer. The final curtain, more or less, could come as soon as tomorrow, Sept. 21, when two major notes come due. One of those, according to Fortune, is currently trading at just 30% of its face value, reflecting a consensus heavily weighted towards default.

The situation has implications for the crypto ecosystem, both thanks to worries about Tether’s holdings of Chinese debt, and because crypto is clearly vulnerable to downturns in the broader market. In the 24 hours preceding this morning’s NYSE rout, bitcoin dropped 8% (which, as a reminder to equity traders, is a moderate swing in crypto terms. Store of value!).

Evergrande’s troubles are also part of a much bigger set of issues with the Chinese equity market, and particularly with the sale of Chinese equities in international markets. Very broadly, Chinese stocks are often treated the same as American equity by investors, but it is still unclear that Chinese accounting, due diligence and regulatory practices are anywhere close to on par with those in the United States. That means Chinese investments can look sound on paper while being far riskier in reality.

The most egregious fallout from this was a wave of outright frauds between 2008 and 2016 detailed in the 2018 documentary “The China Hustle.” Perhaps hundreds of Chinese companies misrepresented themselves to international investors, with help (knowing or otherwise) from major global investment banks and respected public figures. Most of these were eventually delisted from Western markets, wiping out billions of dollars invested by average Americans – money that wound up in the pockets of the Westerners who engineered the deals and the Chinese CEOs willing to lie.

Read More: China’s Anti-Crypto Crackdown Is Different This Time | David Z. Morris

“The China Hustle” has a sterling pedigree. It was co-produced by Alex Gibney,........

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